Price discovery is the process of buyers and sellers arriving at a transaction price for a given quality and quantity of a product at a given time and place. Price discovery is critical for sending the correct price signal from the consumer to the producer. Telling them what to produce more of and what to produce less of.
"A market whose participants are starved for information will have much wider price dispersion than one that is information rich." - Ted Schroeder, Kansas State University
The beef industry needs accurate prices for:
- Producers making marketing and risk management decisions as well as business planning (LT breeding decisions)
- Program requirements for price insurance, income and disaster programs
- Policy and regulatory development requires reliable historical data for strategy development by industry and government (including defending against trade actions)
In August 2014 the Canadian Cattlemen's Association published the Price Discovery Task Force Report and passed a motion "That fed cattle price reporting to a third party (e.g. Canfax, BFO, FPBQ) become a program requirement for all federal/provincial programs that require fed cattle price data to operate." This does not make a cash market for fed cattle, but provides an incentive for reporting trade (cash, formula, contracts) through the mechanisms already in place that producers are familiar with.
While the Federal Government recognizes the importance of fed cattle cash prices for trade disputes and business risk management programs they have concerns with an approach where fed cattle price reporting is a program requirement. As such they have encouraged industry to explore alternative options for fed cattle price reporting.
For more information on Price Discovery and Reporting in Canada, check out some of the background material: